L10 Divorce and finance PDF

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Summary

Property and finances after divorce; financial provisions, property adjustments; pre-nuptial agreements....

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Property and Finance: MCA and CPA Lec 10 Property and Finance after Divorce  The law in this area has become very complicated, especially post-White law.  Law is the same for divorce and dissolution under the Civil Partnership Act (CPA). History / Theoretical analysis of finance after divorce  19th century we still had coverture, husband and wife are one and that one is the husband. Women had no legal personality, could not own land or get into a contract. Divorce was very difficult to come by. Doctrine of coverture was support by husband, even if divorce. Duty of support took into account fault. It was fault-based. So an adulterous wife lost her right to support.  This maintenance obligation continued, until the 1960s, the campaign against this continuation of support was spear-headed by ‘Campaign for justice on divorce’. They took the view that this duty of support was unfair to men. The legislation provided that after divorce, the injured party had to be left in same financial position (minimal loss principle). Women were seen as parasites, ‘alimony drones’.  As a result of that campaign the notion of a ‘clean break’ developed. Women were seen as potentially economically productive, expected to support themselves after divorce. Important part of current law.  As a result of the clean break principle, the minimal loss principle was removed from legislation (MCA 1973), this continuing maintenance was seen as undesirable and women should become economically self-supporting after divorce.  Current aims are shaped by While-law and subsequent cases. White & White was a very important decision, it introduced an over-arching principle for the courts to follow. It was an over-arching aim of fairness; said there should be equality between spouses; and non-discrimination of economic roles between the two.  The economic position of women before was inextricably linked to her financial position and earning capabilities. The role of a woman = homemaker, child-bearer. She did not build work capital/experience, so her skills were diminished. Whilst out of work, she would not be acquiring skills, experience, pension contributions. This means after a divorce, she would be way worse off than the man. Divorced women are poorer than divorced men. Links to gender pay gap, motherhood pay gap. Not as prevalent now, but still relevant.  So now we have aim of equality. Two main types: Formal equality  ignores the context, ignores situation of people that are considered, equality of opportunity, each have an equal opportunity to achieve goal, aims to give equal starting point. Substantive equality  related more to equality of outcome. Circumstances are taken into account. CLEAN BREAK = formal equality. Each have an equal chance to achieve financial independence. But think about it, if women are inherently worse-off due to their work patterns, how can they really have equal chance?  

But clean break is still important part of law. Matrimonial Causes Act (MCA) 1973 s25A (1): duty to consider ending financial obligations as soon after decree as just and reasonable. Translated to CPA Schedule 5 Para 23(2). Court under MCA or CPA has complete discretion to reallocate property between spouses/partners, irrespective of ownership. Court decides who gets what. Changed slightly after White-law, but court still has discretion.

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Sec 25 (2) (a) MCA: Consider increase in earning capacity that spouse may reasonably be expected to acquire. Eg, a woman who has been out of work will be expected to re-train and go back into job market as this is feasible.

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Sec 25A (2) MCA: Where the court does decide to make a ‘Periodical Payment Order’ (like monthly maintenance), that is an order that continues the financial obligation between parties after divorce, so clean break is not possible. Where they do make an Order, the court has to consider whether it would be appropriate to put a time limit on those payments, that would be sufficient in the view of the court to enable the party, in whose favour the order is made, to adjust to undue hardship to the termination to his/her financial dependence on the other party. Eg. if order is made to woman for £1000 every month, court may order this for 5 years, to give her enough time to retrain and enter the job market.

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Sec 25A (3) MCA: If person applies for Periodical Order and court decides not to grant application; the court can bar her from making any more applications. So she can’t come back another time to make the same application.

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Sec 28(1A) MCA: Provides that if you do get a Periodical Order, you cannot come back to the court for an extension. So if the court gives a time limit for the payments like 2 years, the person can’t come back then and ask to extend the time. If court has not said this, then you can come back and apply for an extension.

Orders Available:

Financial Provision  Found in Sec 21 and 21A MCA; Para 23 Schedule 5 CPA.  Three main financial provision orders that are available: 1. Periodical payments Monthly/annual payments that will end when the payer dies or becomes bankrupt or something similar. 2. Secured periodical payments Similar to above. But payments can be secured against property, so will continue after payer’s death. 3. Lump sum Eg. if a clean break is possible, court may ask richer spouse (usually husband) to make a lump sum payment to poorer spouse, and then financial obligations may be terminated. Property Adjustment 1. Transfer of property Will usually be transfer of matrimonial home. 2. Settlement When they have home on trust, as they share it, once the home is sold, each spouse gets own settlement. 3. Pension sharing Relatively recent innovation. When pension becomes payable, the pension company will transfer a certain proportion of pension to spouse after divorce, if this is ordered by court. Courts don’t make use of this much, neither do parties when making financial decisions after divorce. However, it’s been pointed out that they should do this more, as it is a main asset for people. Discretionary System  All assets POTENTIALLY available for re-distribution with court’s discretion. But there are factors that must be taken into account, shown in S25 MCA and Para 21 Sched 5 CPA.

So  as a result of legislation, post-White law, case law, campaigns, the model we have now aims for FAIRNESS AND CLEAN BREAK. Court has to take into account overarching principle of fairness, whilst at the same time, taking into consideration the clean break principle. In addition to that, Miller and McFarlane said there are 3 strains to the concept of fairness: needs, compensation and sharing.

Agreements  Divorce settlements are binding.  Post-nuptial agreements are binding (est. in Macleod). 

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Pre-nuptial contracts – ‘the court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement’ (Radmacher v Granatino). Case held that this type of agreement could be upheld. In case, woman was very wealthy, husband was not, he gave up job to pursue studies. When they divorced, he tried to get financial settlement but according to pre-nup was not entitled to any financial support if they divorced. So court said a pre-nuptial contract should be upheld if freely and knowingly entered into, unless the outcome would be unfair to do so. Radmacher outlined situations where it would be unfair to uphold pre-nup. Said it should not prejudice reasonable requirements of children, should consider if unforeseen events that render agreement unfair, and if it fails to meet needs of one spouse and leaves them in ‘predicament of real financial need’. Equality is not required but it may not be fair if agreement allows one partner to have all the assets. In Luckwell v Limata (2014), court drew some guidelines, overarching criterion of fairness, following Redmacher. Agreement can alter what is fair, so if 2 people entered into an agreement, that constitutes fairness and courts are likely to find outcome fair because that is exercising autonomy. You have chosen what the outcome should be regarding what is good for you. Court will try to respect your decisions. But the weight given to this can vary. In this case, agreement unfair because it made no provision for husband in any circumstances, he was left in real need and couldn’t afford a home for the children to visit. Effect should be given to agreement entered into freely and with full awareness of implications unless it would not be fair in the circumstances: –Cannot be allowed to prejudice interests of children –Respect for autonomy especially where agreement addresses existing circumstances rather than contingent future –Long marriage- less likely to be fair especially where position not as envisaged –Unlikely to be fair where one party is left in predicament of real need while the other has a sufficiency or more –Where each party able to meet needs, may not require departure from agreement

–Must have a home where children can stay and visit, and shouldn’t be significant disparity in living conditions of both parties.

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ARGUMENTS IN FAVOUR OF RADMACHER APPROACH / Pre-nuptial agreements Cheaper, no court hearing Certainty, if you don’t have one you would be relying on court’s discretion rather than on your own terms. Autonomy Encouraging agreement Pro-marriage, some people deterred from marrying in worry of financial issues.

ARGUMENTS AGAINST RADMACHER APPROACH / Pre-nuptial agreements  Costs – upfront costs (paying lawyer to draft agreement), disputes about validity or fairness, legal advice, duress, etc.  Certainty, there can be challenges regarding disclosure of assets, did you disclose all of your assets at time of draft?  Fairness at time of signing, inequality with legal advice  Interest of others like children (unlikely to happen? Due to Luckwell)

 S v S (Financial Remedies: Arbitral Award) 2014  fairly recent form of agreement: Arbitration. Arbitration is when you get someone (arbitrator) who makes a final award out of court. Different from mediation as this is when the parties sort it out themselves. So when couples wish to get divorced, they can go to Arbitration by Institute of Family Law Arbitrators. In S v S, the arbitrator made a final award that the court said was ‘magnetic factor of determinative importance’. The courts will enforce such an award unless there are compelling countervailing factors. Judge should only be looking for glaring problem, otherwise they should enforce the arbitral award. Critique of ‘Fairness’  The Law Commission (2014) said fairness, as a fundamental principle of financial provision, is a difficult and complex concept, inevitably subjective and very dependent on individual circumstances. “An outcome agreed by the parties might be considered fair where the same outcome imposed by the court would be viewed as unfair, because the fairness inherent in upholding agreements may, to some extent, override other conceptions of fairness.” There is move, now, to treating agreements as prima facie fair. Eg. if there has been agreement between parties, it is likely to be fair. 

Commission also suggested STATUTORY confirmation of contractual validity of martial property agreements. Currently, prenups are not in legislation, so they are subject to court’s discretion of interpretation. These agreements would be fully enforceable then in law, but still with door open to court. “The provision we recommend would resolve some uncertainty about contractual status and ensure consistency with the rest of the statutory background”....